Fire and rehire: the new rules planned for March 2027

Fire and rehire happens when an employer dismisses an employee who will not agree to a change to their contract, then offers to employ the same person again on the new terms. The Employment Rights Act 2025 changes how the law treats these dismissals. The government aims to bring the new rules into force in March 2027.

On Thursday 22 October 2026, the government also published its decision on how the rules will apply to expenses, benefits and shift patterns.

How fire and rehire works

A contract of employment can change only with the agreement of both sides, unless the contract allows the change. When an employee refuses a change, some employers end the contract by giving notice and offer a new contract on the changed terms. The employee then faces a choice between accepting the new terms and losing the job.

Until the new rules take effect, an employee dismissed in this way may bring an ordinary unfair dismissal claim, subject to the qualifying period and the usual test of whether the employer acted reasonably.

How the new rules differ from the current law

Under the current law, an employer that dismisses an employee for refusing a contract change often argues that the dismissal was for "some other substantial reason", one of the potentially fair reasons for dismissal. The tribunal then asks whether the employer acted reasonably, for example by consulting the employee, explaining the business reason and considering alternatives.

Under section 104I, a dismissal for refusing a restricted variation will be treated as unfair, without the tribunal weighing whether the employer acted reasonably. The only route for the employer will be the financial difficulty exception. For changes that are not restricted variations, the ordinary unfair dismissal rules will continue to apply.

What the new rules say

Section 28 of the Employment Rights Act 2025 adds section 104I to the Employment Rights Act 1996. Under section 104I, an employee is regarded as unfairly dismissed where the reason, or the principal reason, for the dismissal is one of the following:

• the employee did not agree to a restricted variation of their contract
• the employer wanted to employ another person, or to re-engage the employee, under a varied contract to do the same or substantially the same work

The second limb covers employers who dismiss an employee and then hire someone else, or rehire the same person, on worse terms to do the same job.

What counts as a restricted variation

Section 104I lists the changes the rules cover. They include:

• a reduction or removal of any sum payable to the employee, such as pay
• a change to a measure of work done, where the employee's pay depends on that measure
• a change to terms relating to pensions
• a change to the number of hours the employee must work
• a change to the timing or duration of a shift, under conditions the government sets in regulations
• a reduction in the time off the employee is entitled to take
• a new term in the contract that would allow the employer to make any variation
• other changes the government specifies in regulations

The government's decision of 22 October 2026

On 22 October 2026, the government published its decision on how the rules will apply to expenses, benefits and shift patterns. The government plans that dismissing an employee for refusing any of the following changes will be automatically unfair:

• a reduction in certain travel costs, including mileage, or in accommodation costs
• removal of accommodation the employer provides
• a move from day work to night work, or from night work to day work, with night defined as 11pm to 6am
• a move from weekday work to weekend work, or from weekend work to weekday work

Changes to share schemes are not covered. Availability windows are not part of the shift pattern rule. Where the contract of employment contains a variation clause, an employer may still change expenses and benefits within the terms of that clause.

The exception for financial difficulty

An employer can rely on an exception if it shows two things. The first is that the reason for the change was to eliminate, prevent, significantly reduce or significantly mitigate the effect of financial difficulties affecting, or likely to affect, the ability of the business to continue as a going concern. The second is that the employer could not reasonably have avoided the need for the change. Different rules apply to local authorities.

The exception is narrow. An employer seeking to save money or increase profit, without financial difficulties of this kind, cannot rely on it.

A new Code of Practice

The government is consulting on a new draft Code of Practice on dismissal and re-engagement. The government expects the new Code to take effect in Summer 2027.

Two examples

A care worker has worked weekday day shifts for six years. Her employer tells her that from next month she must work weekend nights, and that she will be dismissed and offered a new contract if she does not agree. Once the new rules are in force, a dismissal for refusing a move from weekday to weekend work, or from day to night work, will be automatically unfair under the government's plans, unless the financial difficulty exception applies.

A sales representative receives a mileage allowance under his contract. His employer proposes to remove the allowance and says he will be dismissed if he does not agree. Under the government's plans, a reduction in mileage costs will be a restricted variation. If his contract contains a clause allowing the employer to change expenses, the employer may still make the change within the terms of that clause.

These are illustrative scenarios. They are not real Belonge clients or decided cases.

When the rules take effect

The government aims to bring the fire and rehire rules into force in March 2027. The government has said that future dates depend on Parliament and may change. Until the new rules take effect, the current law applies.

Time limits

For most claims where the act complained about happened on or after Thursday 1 October 2026, the time limit is six months less one day. Where the act happened before Thursday 1 October 2026, the time limit is three months less one day. ACAS early conciliation may extend the time limit.